Larry Summers Just Answered The Big Question

For the last 24 hours, there's been a meme in the media: Nobody
really knows where Larry Summers stands on monetary policy.

That's kind of a big deal, since that's what the Fed deals with.
It's also important since his presumed chief rival, Janet Yellen,
is one of the world's most important monetary policy minds, who
has done work that's at the cutting edge of the field.

A close reading of Mr. Summers's columns and speeches, as well as
conversations with people familiar with his thinking and a June
interview with him, show that Mr. Summers has been skeptical
about the benefits of the Fed's huge bond-buying programs, known
as "quantitative easing," but that he also has said he sees few
harmful side effects stemming from them.

Mr. Summers's views are of intense interest, both in Washington
and on Wall Street, because the next Fed chairman likely will
have to manage the exit from extraordinarily easy policies
intended to bolster the economy. Investors have become unsettled
about any mention of the Fed's pulling back from the bond buying,
and both Democrats and Republicans have been vocal about what
they would like to see from the next Fed chief.

So Summers, like Yellen, would likely be dovish.

That being said, we kind of lied in the title of this post.
Summers answered a question, but he didn't answer the question.
Yes, Summers would be dovish, and he wouldn't knee-jerk pullback
on QE, but frankly, the QE question is pretty overrated. The
"tapering" of large-scale asset purchases is baked in the cake,
and will likely start later this year, with an eye towards ending
them totally some time next year. It's not that controversial
that Summers is skeptical on the efficacy of QE. Even the Fed is
done with it. Most of the interesting questions have to do with
guidance, and other unconventional tools that the Fed can use
while interest rates are near zero.